InvestingInProperties.com

  • Facebook
  • Google+
  • Twitter

  • Current Events
  • Financing Property
  • Locating Property
  • Build Your Team
  • Fixing
  • Rentals
  • Resources
    • Real Estate Investment Calculator
    • Mortgage Calculator
    • ROI Calculator

Unlocking Hard Money For Investment Property Loans

Using hard money lenders

Hard money loans are basically a form of short-term borrowing available to property investors. They are like bridge loans, in that they are designed to get in and out of very quickly. Hard money loans are typically used by those in dire financial straits, like borrowers facing foreclosure or bankruptcy. But property investors utilize their services as well – and with good reason. Simply put, hard money loans are a much better alternative to all cash deals.

Private investors

The average hard money investment property loan is supplied with capital put up by private investors – usually as a pool of money that is used to drive much greater profits for its investors. This private capital is traditionally unregulated, which gives the hard money industry a kind of “Wild, Wild West” feel to it’s practices and reputation. Pejoratively, many consider hard money lenders as sharks feeding off the misery of those in bad financial straits. As a property investor, you will certainly need to approach any hard money investment property loan with a great deal of caution and foresight prior to signing on the dotted line.

Who hard money is designed for…

That said, if you do not have excellent credit, or if you’re self-employed with much income written off, or if you are investing money from a self-directed IRA, then it may be difficult for you to obtain conventional mortgage financing. You could pay all cash for your next property acquisition. But hard money lenders allow you the ability to utilize leverage – even in the short term.

Think of hard money lending as a local train on the real estate train line. Conventional bank loans are quite onerous to qualify for, but they offer the best rates and terms for property investors. They are like the express trains on the line. Hard money investment property loans are like local trains in that you will need to continually be stopping off at more points along the route. Points where you need to pay off your existing short term loan’s balloon payment by taking out another short-term loan to supercede it.

Is this more costly, time consuming and fear-provoking? Absolutely. But, hey – you’re a property investor. You should be used to living with debt and risk – and be comfortable with it. Your safety is knowing there are always going to be hard money lenders out there with their private funds to ensure you make it through to your next “stop” on the line.

Leverage ability

While paying all cash for a property is the “safe” way of investing, it provides no way to leverage your financial strength. Assuming you could not obtain conventional financing, hard money lenders offer the next best alternative to all cash deals.  While your cash flow will be severely impacted because of the relatively exorbitant interest payments on hard money loans, even a small positive cash flow will yield great leverage over several years of making timely payments on the loan. Remember, besides the cash you put up on the property as your down payment, you will be paying off the principal on your hard money loan each month – thereby helping to increase your return on investment (ROI). Over several years, a small positive cash flow will yield much greater ROI’s than an all cash purchase would.

Costs for hard money investment property loans

If you’re going swimming amongst the sharks, your protective shark cage is knowledge. You need to know ahead of time that typical hard money loans carry interest rates that can run anywhere between 12 and 18 percent. Balloon payment are de rigeur, and these mortgages usually come due within 1 to 3 years. In all but rare instances, hard money lenders require being in the first mortgage position, so they can get their money out first if you default.

In addition, typical loan-to-value (LTV) ratios on hard money investment property loans range between 50% to 65%. And this LTV is based upon the “quick sale” market value of the property…that is – what the property will fetch today – not three months from now after you’ve fixed it up. Another potentially scary cost to take into account are points (up front interest charges). Typically, they can run anywhere between 4 to 8 percent of the total mortgage amount.

Not for the faint of heart

As a borrower, the hard money loan is definitely not for the faint of heart. You should already be comfortable taking on more debt, especially of the short term variety. You should also be well aware of the consequences in case of default.

The hard money lender takes on the increased risk of borrowers with less-than-stellar credit. For this, they are able to charge exorbitant interest rates, with onerous terms, and even more Draconian conditions if the borrower defaults.

A mature, responsible investment property investor/borrower should not be scared off by the terms of a hard money loan. They realize they can use the leverage to their advantage to help grow their real estate holdings. And they enter into hard money investment property loans with eyes wide open.

 

photos courtesy of  trustdeedinvestment.org,  peachstonecapital.com, hardmoneylendersutah.com, californiahardmoneylenders.blogspot.com, buffaloniagararealestatehomesales.com, longislandbankruptcycenter.com, rehabfinancial.com

 

Email, RSS Follow

Filed Under: Financing Property Tagged With: bankruptcy, bridge loan, bridge loans, conventional loans, credit risk, credit score, credit scores, foreclosure, foreclosures, hard money, hard money financing, hard money lenders, hard money lending, Hard Money Loans, hard money mortgages, high interest rate, Interest rate, Investing, investment property, Investment Property Financing, investment property loan, Investment Property Loans, investment property mortgage, investment property mortgages, investment property search, investments, IRA, leverage, Loan-to-value ratio, LTV, pitfalls of hard money, pitfalls of hard money lenders, pitfalls of hard money lending, poor credit, private capital, private capital financing, private capital loans, private capital mortgages, private investors, Property, property investing, property investment, property investment loans, property investment mortgage, property investment mortgages, property investments, Real estate, real estate investing, real estate investment loans, real estate investment mortgage, real estate investment mortgages, real estate investments, real property, return on investment, ROI, self directed IRA, short term loans, short term mortgages

Join 3 other subscribers

Investing Video Picks!

Recent Posts

  • The Right Questions To Ask When Renting A House
  • How Does Equity Work? Things You Should Know
  • How To Rent Out A House Successfully: The Ultimate Guide
  • Positive Cash Flow In Real Estate 101: Definitive Guide
  • 8 Questions to Ask When Buying a House

Copyright © 2021 investinginproperties.com

About · Terms of Use · Sitemap · Contact

This website uses cookies to ensure you get the best experience on our website. Learn more.